Q&A
Since You Asked
| Professional trader Don Bright of Bright Trading
(www.stocktrading.com), an equity trading corporation, answers a few of
your questions. |
Don Bright of Bright Trading |
TRADING NEWS
There are a couple of news scenarios for which I would like your
input. If a stock you play regularly has announced earnings since the last
trading session, will you play it on the opening? If so, do you adjust
the envelope for this symbol? What about earnings "guidance" and other
significant news? Also, what about when there is no news on the symbol,
but there is significant news or earnings on a stock in the same industry
group or on the industry group itself?
I understand that news is subjective and varies on a case-by-case
basis. However, are there any rules of thumb that you follow? Thanks in
advance -KnowFear
Good questions! What we look for is the preopening indication, which
will give us an idea of where the stock is going to open. This information
is put out by the NYSE specialist whenever the stock is going to open any
distance away from the prior day's closing price. This is more important
than the earnings or the news. We have all seen "better than Street" earnings
cause a stock to fall, and vice versa. I adjust the actual bid or offer
so that they fit into the bottom third of the indication. Let me explain:
If my bid price was $22.00 based on our fair value calculations, but the
opening indication was a $17 bid/$18 offer, then I would adjust my bid
(only - not the ask) to around $17.30 or so. I don't want to buy a down
stock near the upper end of its indication. We are usually glad to be "in"
when the stocks open far away from the previous close. It's the old adage,
"Buy the rumor, sell the news" - and the reverse.
We try to always be aware of significant news and other factors within
the sectors that we trade. I try to make sure my "boot-campers" are working
together to follow the premarket news. I share what I can, but I want them
to become self-sufficient and be able to understand the concepts involved
prior to heading out on their own. Mid-trading day, we like to be flat
when earnings are coming out. We generally have a good idea of the earnings
based on the movement of the stock, but we often have surprises, as any
trader understands.
WINNIG PERCENTAGE
For every 10 trades a person makes, what would you consider to be
a good winning percentage? -Tim McIntyre
We look for about a 70% batting average. It is also extremely important
to be sure that your winning trades are at least as good as your losing
trades. You cannot allow your losers to eat up your winners (that sounds
so obvious, but it can be hard for novices).
GETTING STARTED
Can you give some suggestions to a guy who dreams of becoming an
equity trader? I have a very limited amount of capital, but I have a passion
for financial markets and a willingness to commit 100%. I have been told
you are the godfather of trading, and I'd appreciate any advice from you.
- David
Check the colleges and universities near where you live to see if they
offer any serious trading classes. There are some here in the Las Vegas
area, and I know there are some good ones in the Boston and Washington,
DC, areas. In addition, internship programs are available at various universities
around the country. Decide if you want to trade as a career, or simply
as a way to (hopefully) make some extra money.
Some firms may allow new traders to start with little or no capital,
which is fine for some people just getting started. Be sure to check all
the fees involved and the profit split. At Bright Trading we look at this
a little differently: We look for those who think of trading as starting
their own business, and who have a little capital to invest in their new
venture. We provide the actual trading money, and share the risk with our
traders.
FOLLOWING STANDARD & POOR'S
I know you're a big believer in the method of finding a Standard
& Poor's 500 stock with decent volume and liquidity. You choose two
or three and become a specialist in those stocks, trading them on a regular
basis. I wanted to find out how that kind of trading has been going the
last few months.
This was my style of trading when I traded Nasdaq stocks, and it
was how I traded NYSE when I switched over in the middle of last year.
However, I have not had much success with this method for several months.
It seems that so many stocks are not moving with the futures, or even when
they do, it can be unpredictable when they will move and when they won't.
Can you give me any insight on how this style of trading has been working
for traders at your firm lately? -Bob
We still encourage the specialization technique, but have added the
constant enveloping of bid/ask - even layering at times to take advantage
of "trade-throughs" (price improvement on large-block trades). Decimalization
has been the driving force in altering our time-proven strategies. As always,
we have to constantly adapt to whatever the market throws at us. Following
S&P stocks works both ways - as you notice a variance (counter-movement),
then you look for other stocks in the sector to see if there may be a reason
for the anomaly. Relative strength within the sector helps a lot with tape-reading.
We are also big fans of intraday pairs trading.
Emailyour questions for Bright to Editor@Traders.com,
with the subject line directed to"Don Bright Question," or post on
question on our Message-Boards.
Originally published in the August 2003 issue of Technical Analysis
of STOCKS & COMMODITIES magazine. All rights reserved. © Copyright
2003, Technical Analysis, Inc.
Return to August 2003 Contents
